By Ross Kelly
SYDNEY--Papua New Guinea became the world's newest energy
exporter, after a facility operated by Exxon Mobil Corp. began
shipping liquefied natural gas.
The delivery from the US$19 billion PNG LNG project was the
first from several new LNG terminals in the small southeast Asian
island nation and Australia. The plants are expected to start up
over the next three years and will mark a shift in the global LNG
trade away from the Middle East.
Work began on the PNG LNG project in 2010, when Asian gas users
were looking to increase imports of fuels that burn more cleanly
than coal, and international energy companies were struggling to
gain access to resources not owned by foreign governments. The
industry's landscape has changed dramatically since then; North
American companies now are looking to export shale gas, and China
in recent days signed a US$400 billion deal to buy gas from
Russia.
The changes threaten to make the market more competitive and
drive prices down for producers. But for Papua New Guinea, the
start of gas shipments around three months ahead of Exxon's
schedule heralds a much-needed injection of cash into its economy.
By some estimates, the PNG LNG project could more than double the
country's gross domestic product.
Exxon, based in Irving, Texas, said the PNG LNG project would
produce more than 9 trillion cubic feet of gas over 30 years,
starting with the maiden shipment to Japan's Tokyo Electric Power
Co. Exxon is in talks with partners including Australia's Oil
Search Ltd. about expanding the plant.
"It's great for Papua New Guinea," said Jenny Haward-Jones, an
expert on the country at the Lowy Institute, a Sydney-based think
tank. "It sends an important signal to the international resources
community that things can get done here."
Still, it was unclear whether the country would be able to avoid
the so-called resource curse of many developing nations that
receive a sudden influx of cash. "The big problem is whether the
country uses the revenue from PNG LNG to improve living standards
here and equally distribute the benefits," Ms. Hayward-Jones said.
"It seems to be going well, but you wouldn't want to predict
everything will be completely rosy."
Early completion of the project is a boon for Exxon, which is
under pressure to find new sources of revenue to boost sagging
earnings. Oil and gas production at the company has fallen every
year since the 2010 acquisition of natural-gas producer XTO Energy
Inc.
"Our demonstrated expertise will enable us to progress other LNG
opportunities in our portfolio, including expansion opportunities
in Papua New Guinea, and to meet growing global demand," Neil W.
Duffin, president of Exxon Mobil Development Co., said in a
prepared statement on Monday.
PNG LNG still faces risks, including potential disputes between
landowners over the distribution of royalties and environmental
damage and harsh operating conditions in a country that is prone to
heavy rains and earthquakes.
The project's gas is in remote parts of the country's
mountainous highlands and has to be transported to the coast by a
190-mile, 32-inch pipeline that crosses rugged terrain up to 650
feet above sea level. From the shore, it is transported by a
250-mile subsea pipeline to a gas-processing terminal before being
shipped to customers in Asia, including Taiwan's CPC Corp., Japan's
Tepco and Osaka Gas Co. and China Petroleum and Chemical Corp.
The project's infrastructure crosses land occupied by local
tribes that speak dozens of different languages and often are at
war. The Panguna copper mine on the Papua New Guinean island of
Bougainville was shut down in 1989 after local residents attacked
the mine and its staff amid claims of environmental pollution and
unfair distribution of government proceeds.
Papua New Guinea's prime minister, Peter O'Neill, said Monday
that PNG LNG would benefit the country for generations.
Exxon and Australian partner Oil Search are looking to expand
its annual production capacity beyond 6.9 million metric tons of
LNG. Among their options are a large gas resource at P'nyang, which
also is located in the country's highlands, and exploration
prospects near fields that already supply the PNG LNG plant. Oil
Search also is involved in a joint venture that includes InterOil
Corp. and Total SA that is planning to build the Papua New Guinea's
second LNG plant by tapping two large gas discoveries in the
country's south.
Write to Ross Kelly at ross.kelly@wsj.com
Corrections & Amplifications
Exxon is based in Irving, Texas. An earlier version of this
article incorrectly said it was based in Houston.
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